Carvana’s stock plunge risks worst day ever as bankruptcy fear revs up

Carvana stock on Wednesday was in danger of posting its second-worst — and possibly its worst — day on record, on heavy volume and amid growing concerns about its ability to remain a going concern, according to a number of reports about the used-car retailer.

At last check, shares of Carvana Co. CVNA:
were down around 35%. A percentage loss greater than 38.95%, which the stock put in on Nov. 4, would represent the company’s ugliest daily slide since listing on the New York Stock Exchange in 2017.

Carvana’s shares are down nearly 98% so far in 2022, FactSet data shows.

FactSet:

In the most recent development, Carvana creditors, led by Apollo Global Management Inc. APO:
and Pacific Investment Management Co., signed an agreement to team up in credit talks with the company in a move to avert the conflicts that have arisen in other debt restructurings, Bloomberg reported Wednesday. That suggests that a restructuring of the company might be imminent.

The company did not immediately respond to an email requesting comment.

Bank of America analyst Nat Schindler last month downgraded the company’s stock — one of a number of recent downgrades — to neutral from buy, noting that it has been burning through cash.

“We now believe that without a cash infusion, Carvana is likely to run out of cash by the end of 2023,” Schindler wrote at the time.

The decline for Carvana comes as the Dow Jones Industrial Average DJIA,
the S&P 500 SPX
and the Nasdaq COMP
are falling firmly in Wednesday trade. This is happening amid heightened worries that the US economy is headed for a recession next year, as the Federal Reserve attempts to quell inflationary pressures brought on at least in part by the COVID-19 pandemic.

Carvana, which was created to disrupt the used-car sales market, was one of the companies whose shares experienced a tailwind during the pandemic, as buyers flocked to used cars as a result of disruptions in the supply chain for new cars.

However, a surge in interest rates and a push for rapid growth, fueled by debt, proved a recipe for disaster for Carvana’s stock.

Shares of competitor AutoNation AN:
were up marginally and have risen 3% so far this year.

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